Minister Iswaran at 2015 Singapore Economic Review Conference Dinner 2015

​SPEECH BY MR S ISWARAN, MINISTER (PRIME MINISTER’S OFFICE), SECOND MINISTER FOR HOME AFFAIRS AND TRADE AND INDUSTRY, AT THE SINGAPORE ECONOMIC REVIEW CONFERENCE DINNER 2015, 5 AUGUST 2015, 7.45PM

Professor Euston Quah, Editor of the Singapore Economic Review and President of the Economic Society of Singapore,

Distinguished Guests,

Ladies and gentlemen,

Good evening

Introduction

1.            Thank you for inviting me to the Singapore Economic Review Conference Dinner. I am pleased to join all of you on the 60th Anniversary of the Singapore Economic Review, a leading journal that has contributed much to the analysis of economic issues in Asia.

2.            This anniversary celebration occurs on the eve of another significant milestone. In a few days, on 9 August 2015, we will be celebrating the 50th year of Singapore’s independence as a nation-state. We have been variously described as the “improbable nation”, an “economic miracle”, and the “Switzerland of Southeast Asia”. Since 1965, our economy has grown close to 40 times, while our GDP per capita has risen by 13 times, from S$5,300 in 1965, to S$69,600 in 2014.

3.            Singapore’s economic story is often told as a journey through various stages of development: labour-intensive industries making way for high-technology industries, growing the services sector, R&D and innovation. In retrospect, Singapore’s economic story may seem like a textbook progression from a factor-driven, then an efficiency-driven, and later an innovation-driven economy. This narrative is familiar, but it is also incomplete. 

Challenges We Face

4.            In reality, our progress and economic development was neither linear nor assured. Singapore’s economic journey is punctuated by critical challenges in each decade, and the collective response of the government and the people.  Scarcity and domestic constraints shaped, even impelled our economic strategies. Exogenous shocks confronted us with hard choices and, in some cases, presented new opportunities. And these internal and external challenges remain - today and well into the future.

5.            Singapore’s ability to adapt to evolving scenarios, and go against the grain in search of flexible responses to new challenges, has been the lynchpin of our economic policy. Some of the challenges we face are enduring, because they are part of our DNA. For example, our limited land and population are self-evident. Shanghai’s resident population is five times that of Singapore’s, and Shanghai is but one of more than 600 cities in China. We are indeed a “little red dot” in every sense of that moniker.

6.            Yet we have managed to carve out a niche for ourselves. Today, Singapore continues to rank highly as one of the top countries for doing business and for global competitiveness. We have been ranked number one on the World Bank’s Ease of Doing Business Report for the past nine years, and number two on the World Economic Forum’s Global Competitiveness Report for the past three years.

7.            At the same time, we face other challenges that are external in source, and sporadic and unpredictable by nature. It is only by remaining nimble and adaptable, and overcoming economic and other orthodoxies, that Singapore can continue to surmount such challenges and thrive. In the rest of my speech, I will outline how we have done so in the preceding decades; three challenges that confront us today: the resurgence of Asia, the pervasive impact of disruptive technologies, and the need for a sustainable and adept workforce. And, how we can overcome these challenges, through enhanced market integration, greater focus on research and innovation, and deeper skills in our workforce.

Overcoming and Adapting to Challenges

8.            Dr. Albert Winsemius, Singapore’s economic advisor in our formative early years, described Singapore in the 1960s as “a poor little market in a dark corner of Asia.” Given Singapore’s small domestic market and lack of natural resources, the main task was to industrialise and create jobs for a rapidly growing population. Hence, the Economic Development Board encouraged export-oriented industries, and attracted multi-national companies, or MNCs, to set up base here.  This was not conventional wisdom for it went against the grain of prevailing anti-American and anti-MNC sentiment at the time. But, it was a strategy that created good jobs for Singaporeans and boosted economic growth.

9.            In 1973, the Middle East oil crisis resulted in a quadrupling of oil prices worldwide and precipitated a global recession. Singapore’s real GDP growth plunged to a third of its pre-crisis rate, from 13.5 per cent in 1972 to a low of 4.6 per cent in 1975

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. Singapore also began to experience greater regional competition for investments by MNCs, and a tightening labour market. Our economic policy had to adapt to the new realities. Hence, we shifted gears towards greater automation and higher value-added investments and activities. Productivity promotion also began in earnest, in tandem with a greater push towards mechanisation.

10.         Our next major challenge came in 1985 when Singapore experienced her first post-independence recession. The downturn came swift and sudden, due to a confluence of external and internal factors such as decreasing demand for goods and services from regional countries, and increased operating costs due to higher wages and rentals. In response, Singapore sought to diversify our economic base. Manufacturing and services became our twin growth engines. We identified and focused on key industrial clusters, such as chemicals, electronics and engineering. We also channelled resources to enhance services capabilities in fields such as finance, transportation, communications and international services. Regional economic integration gathered pace with mooting of initiatives like the Growth Triangle.  

11.         Later, the Asian Financial Crisis in 1997 caused another recession. After the 9/11 terrorist attacks in 2001, the major economies experienced synchronised slowdowns, and the rise of China and India intensified competition.  Singapore adapted by increasing R&D efforts and encouraging entrepreneurship.  We sought to diversification into newer markets like South Asia, Latin America and the Middle East. Growth was increasingly dependent on productivity and innovation. We also took steps to identify and develop new growth clusters in advanced manufacturing, applied health sciences, urban solutions, logistics and aerospace, and financial services.

12.         This brief sketch of economic history highlights two important points. The first is the dynamic and unpredictable environment which envelopes us; you could say it is the karma of a small open economy. The second is that our progress was by no means assured or inevitable at each critical juncture. It was the result of a conscious and concerted effort to adapt and, where necessary, go against the grain. These lessons are instructive as we contemplate the path that lies ahead. 

Growing Resurgence of Asia

13.         As Singapore approaches the third decade of the third millennium, I believe the challenges we face are threefold. The first is external - the resurgence of Asia. This is not a new phenomenon, but it has intensified in recent years. The Chinese economy remains formidable, despite concerns about its slowing growth. China continues to manufacture a staggering proportion of the world’s goods – things we often take for granted: 90 per cent of all personal computers, 80 per cent of all air conditioners, 70 per cent of all mobile phones, and 60 per cent of all shoes.

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 However, China is ascending the value chain, and will increasingly compete with Singapore in high-tech manufacturing sectors, such as the semi-conductor industry. India, too, has announced “Make in India” and “Smart Cities” as two of its priorities, potentially creating a new manufacturing base in Asia. This could be a game changer as India’s demographic base is projected to overtake China’s in less than 15 years.  Meanwhile, we are surrounded by regional emerging economies with untapped potential.

Impact & Implications

14.         So, what does this mean for Singapore?  We can anticipate intensifying competition for investments, markets, resources and talent in the region. On the brighter side, the rising affluence of Asia’s growing middle class and the increasing sophistication of Asian consumers also hold tremendous opportunities for us.  Our strong air and sea transport infrastructure has helped make us a logistics and financial hub for ASEAN, Asia and the world. We must continue to build on our strength in connectivity – to be the bridge between Asia and the rest of the world. Changi Airport, for example, will be adding a third runway and two passenger terminals in the next 10 years.

15.         We must also continue to support regional integration efforts such as the AEC, RCEP, and the ongoing Trans-Pacific Partnership (TPP) negotiations. The TPP aspired to set new benchmarks for economic integration.  It will not only lower trade barriers and enable better market access, but also establish common standards, for example in intellectual property and labour law, which will increase investor confidence. It will build on Singapore’s robust network of trade links, which is currently one of the most extensive in Asia.

Proliferation of disruptive technologies

16.         The second challenge that we face, which is both internal and external, is the advent and pervasive impact of disruptive technologies.  For example, additive manufacturing, or 3-D printing, is an innovation that will disrupt traditional supply chains and create new value networks. It is already transforming industries. Using 3-D printing technology, General Electric and Boeing have manufactured jet parts; Nike, football cleats; and Hasbro, children’s toys.  Uber has challenged traditional business models in transportation models, as has Airbnb in hospitality.  Electronic commerce means that the world is our market, but also our competition.  

17.         New technologies are reshaping all aspects of industry, from design and manufacturing, to logistics and distribution, and service fulfilment.  Singapore’s challenge is stay ahead of the curve, creating value of our own in order to be a key node in this global network and stay relevant as an economy. These new technologies and business models will redefine the nature of jobs and the skill sets valued by the market.  Our challenge is not only whether we can adopt new technologies more quickly than others, but also if we create value by pushing the frontier in new ways.

18.         For this reason, Singapore will continue to invest in, and refine, our national research and innovation strategies. Our annual R&D expenditure has increased tenfold in two decades: from $0.76 billion in 1991 to $7.57 billion in 2013. Over the years, our efforts have yielded tangible results. For example, we have developed new high-tech industries in sectors such as biomedical sciences and environmental and water technologies. 

19.         The upcoming Research, Innovation and Enterprise 2020 plan will focus our investments in areas where we have a competitive advantage. We will continue to encourage small and medium enterprises to embrace innovation and develop in-house capabilities, and enhance the vibrancy of the start-up ecosystem, so that entrepreneurship can thrive. 

A sustainable and adept workforce

20.         Out third challenge is internal – our aging population. Today, there are some 440,000 people aged 65 and above. This is double the number 15 years ago. In 15 years’ time, it will double again to 900,000. And if our total fertility rate stays between 1.1 to 1.3, as it has for the past 12 years, then the transition will be profound in its impact on our economy, even with immigration.   

21.         There are no easy solutions as many other nations also grappling with this challenge have found. Apart from policies aimed at promoting marriage and parenthood, as well as carefully calibrated immigration, we must focus our efforts on strengthening the Singaporean core of the workforce. One thrust is to enhance the participation rates of women and older workers. Another is to enhance the skills of our workforce. A key initiative to ensure a sustainable and adept future-ready workforce is the SkillsFuture national movement. SkillsFuture will help Singaporeans gain a mastery of skills in the course of his or her life through an integrated system of education and training, with the support of training providers, employers and unions. The aim is to ensure that Singaporeans have deep skills that are continually updated.   Hence, they will be well-equipped to seize the new opportunities afforded by technology and adapt to shifts in the economic landscape.

Conclusion 

22.         These three challenges– the resurgence of Asia, the impact of disruptive technology, and the need for deeper and adaptable skills in the  workforce– must be addressed effectively in order to sustain Singapore’s economic journey in the next few decades. 

23.         While the challenges are significant, they are not insurmountable. And we can draw a measure of inspiration and optimism from the opportunities that lie ahead, and our own track record in adapting to changing even convulsive scenarios. That same boldness of vision, courage to go against the grain, and perseverance in the face of adversity, coupled with our strong fundamentals, will stand us in good stead as we face the challenges that lie ahead. On this note, let me once again congratulate the Singapore Economic Review on you 60th anniversary, and wish everyone a successful year ahead. Thank you.

[1]

At 2010 market prices

[2]

According to 2011 figures.